Trading on Personal Liquidity pool

Retail Brokers are in almost all cases Takers and build their own aggregation technology solution for adding and aggregating multiple feeds, or employ specialized complex aggregation technology. There are also brokers who are using aggregation capability of electronic communication networks. In essence various technology is used to provide connectivity to multiple liquidity providers and venues in order for the Broker to create their own aggregated liquidity pool(s).

Since FX is not a centralized market place like equity/futures trading that happens on a particular exchange, usually each FX Broker is aggregating slightly different liquidity pool to form their FX Best Bid Offer rates. The liquidity pool is then used by the broker to price their feed into their own single dealer front end platform driven by demand from clients and relatively small costs to operate.

Brokers also can open access to their Clients to trade directly to their liquidity pool, and charge commission per million/lot traded (or add mark-up on top of the feed). In essence execution happens directly to the aggregated liquidity pool, where the Broker is in fact providing clearing of all trades when executed on the pool (The Broker is running an A-book). These Brokers call themselves or offer to their clients ‘True STP/ECN/NDD/DMA’ account types and execution. By doing so, the Broker is not internalizing any trades, process also known as running a B-book. The Broker makes money from collected commissions and/or mark-ups and are generally focused to service and attract active trading clients, who are not losing money quickly by taking large risk, but quite the opposite want to attract successful traders and investors.

On the other side are also the Brokers who mainly run and manage a B-Book (where they first confirm trades on the feed and do not cover all trades instantly with their LPs but decides to hold and manage their client exposure, Brokers run risk management teams/algos who may decide to hedge or not their overall exposure. Note that there many Brokers may present themselves and offer ‘True STP/ECN/NDD/DMA accounts’ but in reality they maybe still B-booking their flow or pass on the flow to an LP or venue where they have a risk-sharing agreement in place. In this case the Broker will make money only when the client is losing money. Usually Brokers want to attract novice traders, offering them high leverage and bonus deals in order to keep the wheel running by attracting more clients and fresh deposits.

Use FXBBO platform and our analysis tools, to learn more about your Brokers, do they run A or B-book, their slippage parameters on the various order type that you execute, execution times, how are their feed looks like compared to other feeds.